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AIG Will Sink or Swim Without Uncle Sam (Update 2)

Updated with market close information, updated price ratios and returns, and AIG CEO Robert Benmosche's internal memo to company employees.

NEW YORK ( TheStreet) -- It's time for investors to take a closer look at the insurance underwriting results at American International Group (AIG) now that the U.S. government has dropped out of the picture.

The news and analyst coverage is focusing on three major events of the past few days, but even before Hurricane Sandy hit New Jersey and New York in October, AIG's property and casualty (P&C) insurance underwriting results were trailing those of its major competitors.

The poster child for government bailouts and the Troubled Assets Relief Program, or TARP, is now nearly free of government ownership. The U.S. Treasury late on Monday announced it would sell its remaining 16% stake in AIG's common shares through an underwritten public offering, with Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and JPMorgan Chase acting as joint bookrunners. AIG agreed to pay the underwriting discount for the offering, as well as the Treasury's expenses.

The shares sold at a price of $32.50, or a 3% discount to Monday's closing price of $33.36. American International Group didn't buy any of the offered shares.

AIG's shares rose 6% on Tuesday, to close at $35.26.

As reported in the New York Times DealBook, AIG CEO Robert Benmosche said in an internal memo to the company's employees that the Treasury's sale of its stake in the company "places well in the past a crisis none of us will ever forget."

Benmosche went on to say that the government's offering marked "the full resolution of America's Financial Support," for "one of the most extraordinary - and what many believed unlikely - turnarounds in American business history. The CEO was careful to credit AIG's employees with the company's recovery, saying "you did it," and also offered a challenge: "How are we going to top this next year?"

After the offering is completed, the government will still hold the Series D warrant to purchase up to 2,689,938 AIG shares, with a strike price of $50, that was issued on Nov. 25, 2008, with a term of 10 years. The Treasury also holds the Series F warrant, allowing the government to buy up to 150 AIG shares for a trivial amount.

The Treasury said it expected its final AIG common share offering to raise roughly $7.6 billion, and that "the overall positive return on the Federal Reserve and Treasury's combined $182 billion commitment to stabilize AIG during the financial crisis is now $22.7 billion."

This sure is a happy ending for American International Group; its CEO Robert Benmosche who has been so successful in resurrecting the company; the U.S. government; the Federal Reserve; and for U.S. taxpayers, who put so much on the line in order to calm the markets and make AIG's credit default swap counterparties whole. However, AIG's long-term investors are still swimming with the fishes, with the stock down 96% -- adjusted for the reverse split in November 2008 -- for five years, though Tuesday's close.